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November 20, 2012

Annuity Sales Struggle Due to Low Rates: LIMRA

Guaranteed living benefit riders were a bright spot in an otherwise dismal third quarter

Annuities continue to struggle with low interest rates. According to LIMRA, overall annuity sales in the third quarter declined 10% compared with the third quarter of 2011, to $54.3 billion.

"Protracted low-interest rates have impacted all lines of the annuity business, causing manufacturers to reassess their exposure among various product lines," Joe Montminy, assistant vice president and director of LIMRA annuity research, said in a statement. "The sustained uncertain economic environment has many companies implementing conservative risk management strategies in an effort to prudently manage their business."

More disconcertingly, while leading variable annuity writers have announced they are making adjustments to their book of business, LIMRA believes the total impact of these decisions has not fully reached the market.

However, the value of the guarantee offered by living benefit riders appears to be getting through to consumers. When available, such riders were elected 87% of the time.

Total fixed annuity sales remained bleak, falling 13% in the third quarter, reaching levels not seen since early 2007. In the third quarter, total fixed annuity sales were $17.7 billion and year-to-date sales totaled $54.1 billion.

Indexed annuity sales remained strong in the third quarter at $8.7 billion primarily due to new companies performing well in the market. Year-to-date, indexed annuity sales 6%, reaching $25.4 billion. LIMRA remains confident that indexed annuities will have a record-breaking year in 2012.

Fixed-rate deferred annuities (book value and market value adjusted) fell “precipitously” in the third quarter, down 26% from the third quarter of 2011. Book value sales sank% in the third quarter to $5 billion; Market-value adjusted (MVA) sales were $1 billion, down 17%. For the year, book value and MVA declined 31% and 13% respectively. Fixed-rate deferred product sales are at the lowest level since the late 1990s.

Single premium immediate annuities (SPIAs) fell 9% compared to one year ago but were up slightly from the second quarter of 2012, to $2 billion. In the first nine months of 2012, SPIA sales declined 8% compared with prior year. One emerging market is the deferred income annuity (DIA) market. DIA sales have risen from $160 million in the first quarter of 2012 to $210 million in the second quarter and reached to $270 million in the third quarter of 2012.

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